Overland's fat lady might be thinking about taking singing rehearsals again, despite its full year 2007 financial numbers making grim reading.

But only at first glance though: its fourth quarter (Q4) revenue down compared to a year ago with a net loss of $6 million for the quarter and $44.1 million for the full year. Full year revenue at $160.4 million was down almost $50 million on the 2006 fiscal year (fy 06) revenue. The Q4 revenue number was down 18 percent because of a 22 percent decline in sales through its largest OEM, HP.

Grim numbers, true, but there are lots of indications of an upturn. The Q4 06 loss was marginally higher at $6.8 million. Some $12.8 million of costs have been taken out of Overland with reduced operating expenses, research and development, sales and marketing and general administrative expenses. Some staff have been let go. All this has meant that the gross margin has been climbing back up; from 13.3 percent in Q3 fy07 to 18.1 in Q4 07. It still has a way to go to get to the 22.3 percent of Q4 06 though.

But the entire product range has been refreshed in seven months under the reign of interim CEO Scott McClendon, also chairman of the board. A new product roadmap has been confirmed and a new worldwide sales VP, Bob Farkaly, a storage industry veteran, joined Overland in April. In a surprise move the CFO, Vern LoForti, has been rewarded for 12 years of loyalty and hard work by becoming the new CEO and president with McClendon reverting back to chairman.

Looming meltdown

Interestingly, these results have been announced just nine months after Overland parted company with its then CEO, Christopher Calisi, in dire straights.

The Calisi years had their good points: such as fighting off the ADIC takeover bid, but they also led to terrible problems. An attempt to outsource manufacturing led to product supply and quality problems. Dell cancelled an OEM contract partly due to this and a new Overland library development (ARCvault) did not do well on the OEM front.

The manufacturing had to be brought back in-house, causing a tremendous burden on Overland's management.

Calisi had Overland buy Zetta and use its IP to develop a protected disk array, the Ultamus line, to round off its NEO tape automation line and REO virtual tape library (VTL) appliance products. Ultamus sales did not meet expectations and the Zetta investment was written off. The company was in dreadful shape.

When this chicken came crashing home to roost Calisi had to go. McClendon, Overland's largest individual investor, took over as interim CEO and presided over a company that had lost its way severely. Its ability to deliver high quality product on time had gone down the pan. Its reputation for branded products was poor, its manufacturing was unstable and its product roadmap in disarray. Consolidation was ongoing in the tape automation market (Sun buying StorageTek, Quantum buying ADIC, Tandberg buying Exabyte) and Overland's future prospects could be construed very bleakly indeed.

The objectives were four: first stabilise the company; secondly put it back into a profitable state, then on a growth path, and so restore the shattered shareholder value.

Restoring channel relationships

Chris James, Overland's marketing VP for EMEA, reckons that Overland is now on its way back and stabilised.

As for OEM relationships, he admitted that Dell did not take ARCvault, but that it was a bit of a blessing in disguise. Dell is: "a finance company wanting supply at ever-decreasing margin. It wanted to change the drive, the robotics, etc, and it got to the point where it wasn't the same product," said James. He added that Dell is not an engineering company and doesn't understand engineering needs, like a long-term supply of volume product. HP on the other hand is an engineering company and does understand.

One three-year contract came to its end with HP but the company is still taking Overland tape libraries for its MSL range and shows all the signs of continuing to do so. James said: "HP has not gone away. The last two quarters were the best ever. Supply is carrying on and HP rarely takes product off its books... The OEM side of the business is now stable and happy."

The NEO range has been refreshed with LTO4 available. James was keen to refute Quantum criticism that NEO is now an old product: "NEO LTO4 is almost 100 percent new compared to NEO LT03, with new drives, new robotics, power supply and version 4 of the Protection OS. There is no commonality with the NEO of five years ago except its compatibility."

Bell Micro took the ARCvault product and it is proving successful. The ARCvault also now comes with LTO 4 too: "The tape side of the business is alive and well."

LTO4 encryption use is slow to take off because the sale involves talking to customer security people as well as backup/archive IT people, and sales cycles get lengthened as a result. Also backup products don't universally support the facility. LTO4 encryption will have to fit in with customers' general security/encryption policies in the future.

Manufacturing is now back in house with a new state-of-the-art manufacturing facility: "We regained speed, quality and hands-on manufacturing management experience." Resellers can now once again specify a delivery time for Overland product to customers: "We lost that but it's now back again."

The Ultamus range is doing well but: "obviously we'd like to see more of it."

Street expectations

Wall Street is looking for profitability but: "that's not expected for another two quarters (at least)." James said the Street is also looking for a cessation of Overland burning through its cash. The regaining of a positive cash flow and the stripping out of almost $13 million dollars of expense shows that that objective has been achieved.

Thirdly the Street wants to see new product adoption: "We've refreshed every product in the last seven months. There has been lots of R&D. The cash burn has now stopped. The new products are selling."

"We have quite a few million in the bank. Our nearest competition (Quantum) has just had to re-negotiate its $400 million loan. Overland just doesn't have a $400 million overdraft and doesn't have to service that debt."

The roadmap

Overland's EMEA marketing VP James was keen to extol the virtues of the REO 4500, the company's recently-announced new tape automation product: "It's five times faster than the REO 4000 and that was the biggest-selling backup-to-disk product in EMEA. We're expecting big things. It's really whizzy."

The Ultamus RAID 1200 can have serial-attached SCSI (SAS) or serial ATA (SATA) drives or both so it can have either high performance, or high capacity, or both in the same cabinet. The Ultamus RAID 4800 is all about capacity and uses SATA drives only.

Overland is going to introduce a de-duplication ability to the REO range with the REO 9500 DD, expected in September. It will also launch a compression-enabled REO in September. James said de-dupe puts a heavy burden on a drive array. It takes time to de-dupe and time to restore (meaning re-build) de-duped files. He reckons de-dupe is best for two markets: remote office backup where de-duped files consume less bandwidth on their way to a central site; and long-term retention (archive). This is a quite unique take on the applicability of de-duplication technology.

Overland will bring out a data mover product by the end of the summer. It will transfer data from REO to NEO and on to Ultamus. Eventually it will be a cross-array hardware product. Customers won't need backup software to move their backed up files from device to device.

On its way back

Overland is now, it appears, stable. It has a new CEO, and a replacement though interim CFO. The axe-swinging has largely been done. Although FY 07 revenue is almost $60 million down on FY 06 it has cut costs and got back to a positive cash flow. The OEM relationships, sans Dell, are on an even-footing. The channel must be happier now that manufacturing performance is reliable.

LoForti said: "After the extreme efforts of the past several months, I am now optimistic, more so than at any time during the recent past." No doubt.

So Overland is certainly on its way back. Survival is no longer in question and Overland staff no longer look as if they're spending time in prolonged trench warfare. But it ain't over until the fat lady sings, and in this case the fat lady is shareholder value and they really, really want a fat lady singing after the last two years.

That's LoForti's number one task. After nearly twelve years of being Overland's CFO he knows that through and through.